Unlike the first case before you this morning, this one does not involve the Constitution.

It involves rules of procedure for civil cases in the United States district courts and the rules governing appeals in the United States courts of appeals.

And lawyers arguing about such rules face the unique task of arguing to you about what you probably meant, must have meant, when you considered rules submitted to you by the advisory committee, the standing committee, the judicial conference, and you approved them for submission to the Congress and they were in fact effective upon the completion of the rules enabling act process.

Although not rising to the level of constitutional issues, we submit that the three questions before you this morning may have an enormous impact on the availability of legal services to clients throughout this country who bring to lawyers every day cases and ask them to carry those cases to court and the lawyers are confronted with the responsibility of doing justice to the clients and meeting their duties to the court, particularly duties imposed now by the current state of Federal Rules of Civil Procedure 11.

The briefs of the parties in this case, as well as the briefs of the amici curiae, have addressed the facts at some length and I choose not to do that this morning unless the Court wishes.

I would like to spend a moment or two on the facts because they lay the groundwork for the three issues that I would like to address.

Briefly, the facts are as follows.

The litigation that resulted in sanctions began as a suit on a contract brought by a subsidiary of the Hartmarx Company against a client of Petitioner... Petitioner's law firm Cooter & Gell.

This suit was met with a counterclaim, a Robinson-Patman counterclaim, and thus began the litigation that ended up in this Court with the sanctions issue.

As the investigation into the counterclaim took place and facts were gathered, Petitioner discovered what it believed to be serious antitrust violations, broad Robinson-Patman violations in a number of cities around the United States.

And allegations by its client, a clothing company, distributor of men's clothing that had done business at various locations since 1969 in Washington, D.C., that Hartmarx Company and two of its principle subsidiaries had engaged not only in Robinson-Patman violations, but it engaged in price fixing that was supported by an exclusive dealer arrangement.

Unknown Speaker: Is it clear that both the attorneys and the client here brought forth these allegations?

That the Petitioner represented to the district court that its investigation was based upon allegations made by its client.

And if I might elaborate, the... the... on that little bit because the record in this case is not the record that I would like to have before you, and I--

Unknown Speaker: But I take it it is the record you're going to deal with.

Mr. Saltzburg: --It is the record we must deal with and... and the reason for that is Rule 11 had just taken effect in its revised form in August of 1983.

The complaint in this case, the class action complaint which gave rise to sanctions, was filed barely three months thereafter and this was one of the early sanctions cases.

When the complaint was filed in this case, it was met with a Rule 12(b)(6) motion to dismiss and almost immediately thereafter a request for sanctions.

Almost immediately after the request for sanctions was filed, Mr. Chief Justice... gets to the point about who made the allegations... request was made by the defendant in the case to depose one of the principals, the leading shareholder and the president of the client company.

Petitioner opposed the deposition at that time, which was focused only on Rule 11, because the district court hadn't addressed the 12(b)(6) motion, hadn't considered the merits, and enormous clients... enormous questions of attorney/client privilege and the difficulty of dealing with privilege questions and Rule 11 issues at a time when this case was in its infancy and there was the previously filed Robinson-Patman claim pending.

And they opposed the deposition and the district court ordered that the deposition take place.

And it did.

During the course of that deposition, which is in the Joint Appendix before this Court, this Court can see that counsel essentially instructed its... the principal of its client not to answer any questions with respect to what the client said to the law firm.

Instead, Petitioner offered to make available any member or the law firm to explain the origins of the complaint, the information that was relied upon, anything else, without waiving the attorney/client privilege.

Well, if I might jump ahead in the law for a moment, if we had the benefit of all the cases, if we had... had had in 1984... in 1983 the benefit of all the cases decided in the next four or five years, one could say, well, didn't they know that procedures would be developed whereby in camera you could go before the district court and make certain representations that wouldn't be disclosed, that there wouldn't be a waiver of privilege.

And there are ways to deal with attorney/client privilege problems that might have enabled the deposition to take place, information to be provided to the judge, without waiver of the privilege and the answer is yes.

With the benefit of what came afterwards, it might have been possible to do things differently.

But this was early 1984.

It was early in Rule 11.

And, in fact, the record indicates that the client basically said, I relied on the law firm and was instructed not to answer any questions about what the client in fact told the law firm.

The Petitioner represented to the district court and represented to the court of appeals, and represents to this Court, that its investigation was at all times based upon the information and belief provided by this experienced client, a client that had been in the men's clothing business for 14 years prior to the filing of the complaint, that it had experience in the industry and that one of the difficulties with this record was the difficulty of dealing with attorney/client privilege questions and an early sanctions motion... early in the case... before the merits were even to be addressed.

Unknown Speaker: We don't have before us, do we, the question of whether it was appropriate for the district court to impose sanctions?

Mr. Saltzburg: No, sir.

The... the issue before the Court is whether... you don't have before you the question of the amount of sanctions or whether the district court abused its discretion.

The Court denied review of both those questions.

It did grant review on the issue of what the standard of review should be, whether it should be a clearly erroneous standard and, to some extent, the propriety of imposing sanctions would, of course, depend on the scope of review that the appellate court should have used.

If the Court decides that a higher standard should have been used than the court of appeals, the Court would, under the question granted, be justified in remanding this case for further consideration by the court of appeals on whether--

Unknown Speaker: What standard do... do you think the court of appeals used, Mr. Saltzman?

It isn't real clear to me from the court's opinion what the standard was?

Without criticizing the court of appeals in any way, I think the fairest statement that one can make is that it's very difficult to tell from the opinion of the court of appeals exactly what standard it used.

There are prior opinions of the District of Columbia Court of Appeals which would bind that panel, unless the court were to go on en banc and of course overrule the prior decisions which suggest that an abuse of discretion standard was used in the circuit.

Unknown Speaker: A moment ago, Mr. Saltzburg, I asked you do we have here the question of the propriety of the district court imposing sanctions.

We don't have the question of the propriety of imposing on those facts, but we do have the question of the authority, really, after a voluntary dismissal, don't we?

Mr. Saltzburg: Yes, Mr. Chief Justice.

That is... that is the first question granted and there are, however, additional questions we believe that fall appropriately within the... what the court of appeals scope of review is.

Unknown Speaker: Well, that may be so but you win if the... if there shouldn't have been any sanctions at all.

Mr. Saltzburg: Justice White, you're correct and I suggest that--

Unknown Speaker: And that's what you're going to argue, I take it.

Mr. Saltzburg: --Immediately.

[Laughter]

The first argument that the Petitioner makes to this Court is that Rule 41(a)(1)(i), which, if the Court permits, I'll refer as Rule 41 to avoid being tongue-tied and each time meaning that particularly... particular subsection of the Rule.

We submit that the second circuit was correct when it said that when a voluntary dismissal is filed under Rule 41, the case ends.

And when the case ends, Rule 11 sanctions may no longer be imposed.

Unknown Speaker: Mr. Salzman, would a court, a district court, have continued power to go after a lawyer on a contempt sanction after a voluntary dismissal?

Mr. Saltzburg: In our view, Justice O'Connor, yes.

Unknown Speaker: Well, how is that different in any way from a Rule 11 sanction which does seem to be one designed to address what the attorney did, not what the client did so much?

Mr. Saltzburg: Justice O'Connor, to give a full answer to that, I want to be clear.

Our position is that with respect to criminal contempt, 18 U.S.C. 401, as well as 28 U.S.C. 1927, the penalty provision for lawyers who vexatiously multiply proceedings, that the court's power to impose and to consider contempt and penalties on the lawyer under that statute are not... are not ended when a Rule 41(a)(i) dismissal is filed.

And the reason is that the Congress has provided by statute for very particularized sanctions for the most egregious forms of behavior and that prior to the amendment in 1983 of Rule 11 there was no indication that contempt or other sanctions for misbehavior, particular affront to the court, couldn't be considered.

What we have today, and the reason this case we submit is different than the issues presented from those statutory provisions, particularly contempt, is that we have your rules.

We have your Rule 11, your Rule 41, and a construction of those rules and what you intended.

And your rules provide two exceptions to Rule 41... 41(a)(1).

They provide that that rule will be subject to 23(e), the class action rule which requires the judge consider notice to the class before the dismissal becomes final, and 66, the receiver's rule.

No one suggested when... in 1983 when the rule was amended, that there ought to be an additional exception for Rule 11.

Now, this is also different--

Unknown Speaker: Well, I don't see why you need an exception.

Rule 11, just like contempt proceedings, is addressed to something else and the language is there, and I fail to understand why a dismissal under Rule 41 should have any effect on a sanction motion against the lawyer.

Mr. Saltzburg: --Well, it's... Justice O'Connor, I would like to argue to you that the plain language of Rule 41 requires the reading that we urge upon the Court, but--

Unknown Speaker: What's that?

Mr. Saltzburg: --but we cannot do that.

Unknown Speaker: Without prejudice?

Mr. Saltzburg: But part of--

Unknown Speaker: The words "without prejudice"?

Mr. Saltzburg: --The... I think the words "without prejudice" are important in--

Unknown Speaker: But doesn't that just refer to the right to file another lawsuit?

I don't see what that has to do with whether the attorney should be sanctioned.

Mr. Saltzburg: --Well, perhaps I can add to... to that.

In this case, both the attorney and the client were sanctioned.

And, of course, Rule 11 requires that the Court consider sanctions both upon the attorney and the client, or both.

And the question then becomes whether or not a dismissal, as you... as you so aptly put it... which Rule 41(a)(1) says will be without prejudice can be in some instances with prejudice because the Court will use that as the sanction it chooses for--

Unknown Speaker: Well, but--

Mr. Saltzburg: --Rule 11 violations.

Unknown Speaker: --But I practiced for 16 years in a state which had the federal rules, as well in the federal courts, and a voluntary dismissal under Rule 41... the only benefit you thought you got from it was that it wasn't res judicata.

The arguments that Respondents make to the Court... now, the Court, of course, can accept less of this argument... the arguments that Respondents make is that indeed Rule 11 does give the federal district court the power to dismiss the case with prejudice as a sanction, notwithstanding Rule 41 saying dismissal will be without prejudice.

They are... and they are in effect forced to that position because all of the cases decided in the lower court say that the district judge has essentially a whole array of sanctions, whatever the district judge deems appropriate.

And their argument is that that is... you can square that reading of Rule 11 with Rule 41 by simply saying that the with prejudice is a penalty imposed because of a Rule 11 violation and that somehow that doesn't interfere with Rule 41's guarantee to the client that dismissal would be without prejudice.

Unknown Speaker: Well, you could... you could argue it that way.

But you could... you could also argue that... that prejudice is an available sanction where it's an available sanction and that it's simply not available where there's been a timely dismissal before an answer has been filed.

Why can't you say it's simply not available under Rule 11 where there's been a Rule 41 dismissal?

Mr. Saltzburg: The Court could say that, Justice Scalia, and it--

Unknown Speaker: Yeah.

It would be logical.

It would be a--

Mr. Saltzburg: --It would be.

It would be, in fact, in our judgment, required as a fair construction of the two rules at a minimum.

But beyond that, and this goes back to the question that the Chief Justice put about what the effect would be of a... of a dismissal.

One of the things that Rule 11 does, at least if our argument is accepted and the law, at least as it's developing now, is that there are at least minimum procedural requirements that must be employed before any sanctions are imposed.

One of those requirements is, at least in some instances where the sanction is severe, that there be fact-finding by the court.

And those facts may very well give rise to collateral estoppel fact unless there is an appeal and unless the appeal is... produces a... an overturning of the lower court's decision.

What happens on Rule 11 is there are no sanctions in the abstract.

There are sanctions because the district judge makes a decision that something was wrong.

And if the district judge decides that something was wrong has to do with the merits of the case, we now have a situation in which 41 says you can dismiss without prejudice, but Rule 11's dismissal may in fact be, as a practical matter, prejudicial not only in the sense of economically prejudicial but prejudicial in the very legal sense of making it more difficult, if not impossible, to bring a subsequent suite based on those same facts.

Unknown Speaker: --What would it... a sanction that made it more difficult but not impossible to bring a subsequent... you would treat that as a dismissal with prejudice?

Mr. Saltzburg: To the extent that the difficult but not impossible involved fact-finding and collateral estoppel that might make the second action if not wholly barred... I mean, it may make the second action precluded at least in part.

Unknown Speaker: Well, what... what do you interpret the phrase 41 to mean beyond it not being res judicata?

Mr. Saltzburg: I think that it is a... that the with prejudice language, or without prejudice, means without having any preclusive effects upon a subsequent suit.

And in the case of Rule 11, there are two possibilities, Justice Scalia, as you say.

One is the Court could say that you simply cannot dismiss with prejudice totally so that the complaint therefore, at least in theory, could be refiled.

But the other problem in Rule 11 sanctions is, to the extent that there are findings which may have preclusive effect either because they are imposed, as in this case, directly against the client as well as the law firm, or because they're imposed against the law firm and the law firm and client are in privity.

Unknown Speaker: That's kind of around Robin Hood's barn, isn't it?

If there's a hearing required and if findings have to be made.

Mr. Saltzburg: Yes.

The... if... it's true, Mr. Chief Justice.

Our argument is in... that... and this is where the first issue and second issue do have some overlap... is that one of the functions of judicial review in the courts of appeal is to assure that before sanctions are imposed... that before they are imposed that there are careful fact-finding supporting the imposition of sanctions and a clear statement of the rule.

It's the fact-finding, as you I think indicated in your question, that has the possibility of preclusive effects and--

Unknown Speaker: Mr. Saltzburg, I thought that collateral estoppel requires that the found facts have been necessary to the... to the earlier decision.

The Court cannot, in the course of an opinion, opine on facts that are not essential to its decision and thereby collaterally estop someone.

Isn't that right?

Mr. Saltzburg: --Yes, sir.

Unknown Speaker: I don't see how any facts must be found for a Rule 11 decision.

No objective facts need be found.

All that need be found is whether the lawyer had knowledge that certain facts were in existence and conducted adequate investigation to acquire knowledge.

So, I don't see how there can be any collateral effect--

Mr. Saltzburg: Justice Scalia--

Unknown Speaker: --as to what the objective facts are.

Mr. Saltzburg: --There is... there is nothing that is inherent in any case that says a judge in making findings would necessarily make fact findings about the merits of an issue or the case.

But in some cases that is part and parcel of the fact-finding when the judge looks at what the lawyer did.

Unknown Speaker: To the extent it is it does not have any collateral estoppel effect because it's... it's not essential to the judgment.

Mr. Saltzburg: Well, it could be in a given case, Justice Scalia.

If in fact the district judge says that in filing the complaint the lawyer alleged facts A, B and C, A, B and C are untrue.

Based on the record before me, those facts in fact may be necessary to--

Unknown Speaker: What Justice Scalia is saying, as I understand it, is even if A, B and C are true, you can nevertheless hold the lawyer... sanction the lawyer because he didn't really find out that they were true in time.

Mr. Saltzburg: --Justice Stevens, that's theoretically possible, that the judge will say that in some cases that A, B and C are true, the lawyer alleged them to be true, but the lawyer didn't really know that they were true, and could impose sanctions for that reason.

In other cases, the judge may in fact say they're not true.

Now,--

Unknown Speaker: In other words, he could be sanctioned for filing a meritorious complaint if he didn't investigate it thoroughly enough to begin with.

Mr. Saltzburg: --That's possible.

Unknown Speaker: Yeah.

Mr. Saltzburg: He may also be sanctioned... and this is a problem with the construction of Rule 11 that allows sanctions to be imposed after a dismissal... that it may also be the case that the judge will say facts A, B and C are untrue.

Now, Justice Scalia may be correct.

He didn't have to say that.

And we could make an argument perhaps down the line in some court that a judge who so found was going beyond what that judge had to do, that he should have focused simply on the theoretical, did the lawyer investigate.

But there's no guarantee that argument in fact will win and that it won't be a preclusive effect.

The other thing, if I might say, about... Mrs. O'Connor, back to the question you asked... about the Court's construction, why this is different from contempt, is that if the Court decides that Rule 11 sanctions may be imposed after a voluntary dismissal, the Court essentially is... is saying, because the rule allows that they can be imposed sua sponte, any time without time limits.

The time limits this Court has provided in its rules for various things... for example, to reopen a judgment... would have no force in effect.

When this Court looked at the attorney's fees question when an application for attorney's fees under statute ought to be... ought to have to be filed, the Court struggled with whether that 59(3) time limit, the 10-day time limit should apply, and it ended up saying no because this was a statutory creature.

But this is a rule creature and the... it is... it is the case which... that if the Court decides that Rule 11 sanctions remain available forever, that no time limit otherwise provided in the law has any force and effect.

Now, that might sound like a theoretical problem, except this case demonstrates how real it is.

In this case, almost four years went by between the time that the sanctions motion was filed, the voluntary dismissal took place.

And suddenly, at the conclusion of a wholly unrelated case, the district court judge said, well, the time is now right to consider the old Rule 11.

Unknown Speaker: Well, that was certainly unfortunate and perhaps the courts need to tighten up on additional rules or times to act on things.

But I don't know that that answers the question you bring to us.

Mr. Saltzburg: I'm not sure, Justice O'Connor.

We would certainly urge that it was unfortunate.

We would certainly urge that there is a real appearance problem and a practical problem if Rule 11 sanctions remain available in any case, no matter when it ends, for any judge to recreate at any time.

Unknown Speaker: Is there a time limit on contempt sanctions?

Mr. Saltzburg: I don't... Mr. Chief Justice, I don't know of a time limit on contempt sanctions.

The... there are other procedural protections, and criminal contempt, of course, being the criminal sanctions, has the Speedy Trial Act provisions that would... that would apply.

Unknown Speaker: How about civil contempt?

Mr. Saltzburg: Civil contempt is... is, to the best of my knowledge, no... I don't know of any sanctions.

But usually it's a contempt power that's invoked during a case to produce certain forms of behavior, and when the case is over rarely invoked thereafter.

I can't think of a case where it's invoked after the end of the case.

Now, if I might... I mean, I certainly realize that it's... it's an unpopular position to stand here before this Court to say that if a lawyer... if a lawyer were to file a plainly inadequate complaint and then move to dismiss the complaint under Rule 41, that somehow the lawyer should escape.

That offends almost everyone's basic sense of what seems right, at least at the outset.

But there is no Rule 11 case... there's no Rule 11 case that doesn't raise this question, which is how are we going to know whether or not there was an inadequacy unless we start the procedural machine rolling to make the Rule 11 determinations?

And our submission is Rule 41 has always served a very valid and important purpose.

It allows people to walk away.

And in this case, to walk away before there's any expense.

In this case if there's one fact that I hope will be significant to this Court, it is this one.

That before this complaint was filed... before this complaint was filed, after the clients made their allegation to Petitioner, this Petitioner gave a copy of the complaint to the general counsel for Hartmarx, the parent company.

It gave a copy of the complaint to counsel who are before you and gave then all the time they wanted to examine the complaint and to talk about it before it was filed.

And these lawyers said, go ahead, file your complaint.

The complaint was filed.

No one suggested that the facts... and in this case it was only one set of facts that mattered, namely, there was price-fixing going on... price-fixing bolstered by an exclusive dealership.

Rather than say, hey, you've got this wrong, we can help you with it, don't file it... rather than that, they waited.

The moment the complaint was--

Unknown Speaker: I... I really can't understand this argument that you've made in your brief.

You... you think that... that someone who is about to be sued in court has an obligation to the other side to make sure that the other side's complaint is accurate?

Mr. Saltzburg: --Justice Scalia--

Unknown Speaker: I think it's your obligation to make sure it's accurate, and the other side is fully intended to say: You want to file it?

Take your chances.

And you did and you lost.

That seems to me the way the system ought to work.

Mr. Saltzburg: --Justice Scalia, I'm glad you put the question that way because I'd like to give you as direct an answer as that question is.

That is exactly our argument.

And the... I'd say this... this to the Court about this entire case.

You have Rule 41, you've got Rule 11, and you have the lawyers arguing to you both as amicus and as parties in this case.

You've got them arguing that what we're trying to do is to deal with the system that is designed to provide speedy, fair justice for all the parties.

Now, one way to do that is to take Rule 11 and to say what Rule 11 does is it imposes some obligation on Plaintiffs, who have no coercive power to force facts from defendants at all, and to say to them, you take your chances.

And to defendants, play cat and mouse, hold back the facts, run and use Rule 11 as a club.

Unknown Speaker: Play cat and mouse.

Just don't bring a lawsuit unless you're sure that there are substantial facts... not necessarily true, but substantial facts to support it.

I don't call that cat and mouse.

Mr. Saltzburg: Well, in this case I would like to remind the Court, Justice Scalia, there has been no determination at all as to whether the facts alleged by the clients of petitioner are true.

We never reached that issue.

Petitioner's clients--

Unknown Speaker: But didn't your client try to... didn't your client succeed in publicizing the filing of the complaint in this case?

There is a reference to a Washington Post article, suggestions by Respondents that there was publicity in this case.

But I think a fair statement of what happened in this case is that the Petitioner, before it filed the complaint, was trying to talk about it and use the litigation when it was apparent that there was going to be no discussion.

Unknown Speaker: Well, of course, the complaint was presented in the context of bargaining in an action on a debt, was it not?

Mr. Saltzburg: That's correct, Justice Kennedy.

The... the... it was a follow-up to a Robinson-Patman Act complaint which was filed as a counterclaim, probably a compulsory counterclaim under the rules.

And it was an attempt to say to the defendants in that case that we think we have a bigger antitrust problem here.

We're going to file a separate case.

We think we've got facts unless you tell us otherwise.

Unknown Speaker: You say when a Plaintiff files a claim for $500,000 damages as a result of an accident and he says to the other side, I think we have a tort problem here... I mean, that isn't what most people think the filing of a complaint is, kind of a starting of a discussion.

Mr. Saltzburg: I think that's correct, Mr. Chief Justice.

No one has suggested that the... that a filing of a complaint is the beginning of the discussion.

In this case, the complaint was drafted after there had been extensive discovery in the... with respect to Robinson-Patman that led to the belief that there were broader antitrust violations.

And the Court has a choice, and the lower courts have a choice when they get into the standard of review.

And the choice is quite clear.

The choice is do you want litigants to avoid litigation where they can?

Do you want them to share information short of having to invoke the compulsory process, or do you want them to run into court and make Rule 11 motions?

If this Court said nothing else other than, the lower courts ought to be clear that there's a duty to mitigate.

But you can't come in and invoke Rule 11.

You can't do it if you've had a chance to avoid all the damages and you chose not to take that chance.

There would be no better principle for reducing the cost of litigation and making it a more civilized place in which to try cases.

There are lots of lawyers out there, whether they're plaintiff's employment lawyers who've filed an amicus brief... lots of lawyers.

Now, if they can't get all the facts... they have allegations, they do... they make efforts to corroborate, and when they do, they have to decide what to do next.

And what to do next may be to run into court and take your chances on Rule 11 or to say to the defendants, here's what we think we have.

Now, Mr. Chief Justice, no one is suggesting that the defendant should be obligated to go through every line of a complaint and to review it for all the law and all the little... you know, intricacies.

But where it's one essential fact and they're saying, we think this is what we've found out... if they think there's something wrong, they ought to say it.

In the court of appeals they said they had an 800 number... never mentioned in the district court, never mentioned it in this Court in any of the papers... which they said that the Plaintiffs could have called to find out where these distributors were.

Well, that 800 number was never mentioned.

If it's easy to avoid litigation, this Court ought to say to the courts of appeals: mitigation is an important part of Rule 11.

Some of the lower courts have said that.

That, we submit, is at the heart of what the scope of appellate review here ought to be.

I have almost no time left, but I hope I might reserve the minute or so that's left for rebuttal.

Unknown Speaker: Very well, Mr. Saltzburg.

Mr. Favretto.

Argument of Richard Joseph Favretto

Mr. Favretto: Thank you, Mr. Chief Justice, and may it please the Court:

I believe the Court has put its finger on some of the issues that are of concern and importance here today.

But in light of Mr. Saltzburg's comments about significant facts, with the Court's indulgence, I'd just like to review a few of the items that he made... he made some allusion to.

Unknown Speaker: Please do it, Mr. Favretto, with a mind to the three questions before the Court, will you?

Mr. Favretto: Yes, Mr. Chief Justice.

I... I... I accept and I agree with your observation that the propriety of the award below... the propriety of the Rule 11 decision below is not before this Court.

Indeed, this Court rejected review of that issue on Question 4.

But Mr. Saltzburg has folded these issues into his... the standard of review question perhaps before this Court, and I'd just like to briefly get... get at the point... get at the point in response.

These arguments about presenting us with a copy of the complaint before filing the complaint were presented to the district court, were debated during argument and were referred to in affidavits filed by Petitioner's senior partner before the district court.

The district court concluded that they never asked us for our view of the facts, that if they had asked us, they wouldn't have believed us, and the whole approach was made in the context of trying to leverage a settlement of the existing litigation as well as paying them more money for these... for these offenses.

We submit in that context that is hardly... hardly... the kind of practice that this Court wants to encourage by endorsing a system where litigants talk to one another before... before filing a case.

Secondly, the idea that they rely--

Unknown Speaker: May I just ask--

Mr. Favretto: --upon their client--

Unknown Speaker: --one question since you've raised that point?

Isn't it customary for the Federal Trade Commission before they file a complaint to give the Respondents a copy and often they negotiate a settlement which they file the same day as the complaint?

That's not a litigant who is already in litigation with you with a major counterclaim against you after you've filed a claim for a $100,000 breach of contract who is coming to you saying, we're not going to pay you that $100,000.

Unknown Speaker: Not, but assume they thought they had a good case.

Is there anything wrong with their telling you about it in advance?

Mr. Favretto: Oh, absolutely not.

Absolutely not.

Unknown Speaker: And isn't it an appropriate subject for discussion during a settlement conference?

I mean, maybe it doesn't help them any, but I don't know how it helps you either.

That's what I--

Mr. Favretto: No, I was just clarifying the--

Unknown Speaker: --Like the Chief Justice, I'm more interested in the issues than this particular--

Mr. Favretto: --Okay.

With respect to relying on the... relying on their client, I would just direct the Court's attention to pages 34 and 35 of the Joint Appendix where when I asked the client about the key allegation in the complaint and asked him what he knew, what independent basis he had for that information, Mr. Cooter interrupted me and asked his client,

"Did you know anything other than what we told you? "

The answer: "No".

Mr. Cooter,

"He trusts us, as well he should. "

"Obviously Mr. Dashtara, the client, didn't make the investigation. "

"We did and now it's crystalline. "

The attempt to shift the blame or shift some of the blame to an absent client before this Court and also before the court of appeals is... is not... does not square with the record.

The Court considered that question, made findings in the district court on it, and I think the record that we have before us has to form the basis for this Court's... for this Court's assessment of the issues before it.

Moving to the... the merits of the issues before the Court, we believe that Petitioner's contention essentially amounts to an argument on the voluntary dismissal point that no matter how egregious the conduct, no matter how much burden or pain that the... that the lawyer imposes on the system, Rule 41... the voluntary dismissal aspect of Rule 41 is an absolutely escape hatch from Rule 11 sanctions.

This cannot be correct.

To state the principle is to refute it.

The rules do not conflict.

Nothing in the wording of the rules makes them conflict with one another necessarily.

The rules serve different purposes, as Justice O'Connor observed, and Rule 11 is a sanctioning provision which protects independent court interests and it is an authority which the district courts must retain beyond their authority to rule on the merits of the claim.

Unknown Speaker: --Shouldn't the sanctions at least be imposed within a reasonable time?

Is there no time limit there?

That was a rather strange proceeding here?

Mr. Favretto: Well, Justice O'Connor, let me just respond by giving you a little background about what happened here and then responding to your question.

First, there was a series of litigation, related litigation between the parties here... various subsidiaries and the Petitioner's client, various subsidiaries of my client and the Petitioner's client.

The litigation was not finally resolved until July of 1986.

The Advisory Committee notes expect that... suggest that Rule 11 sanctions should be imposed at the end of the litigation.

Well, the litigation didn't end until July of '86.

Within two or three months thereafter, Mr. Cooter, Petitioner's senior counsel, appeared before Judge Gasch in another completely unrelated case, the Kuwait Airlines v. American Security case that's referred to in the Petitioner's brief.

When that case was completed in the district court, as Petitioner has noted, Judge Gasch called the motion up for... for a decision.

It could have been complete... it's completely equally plausible, is our submission, that the... we could speculate that Judge Gasch was essentially giving the Petitioner and its senior partner consideration in not ruling on the Rule 11 motion that was pending before him in our litigation while Mr. Cooter was before him in a... in a completely separate case.

Now, that's equally plausible speculation, I say, but it's speculation and, in any event, it doesn't have a jurisdictional foundation.

It doesn't stop the district court from... from finally acting when it... when it did act.

But it seems clear to us that Rule 41 cannot preempt or give a... a lawyer an absolute immunity bath for anything he does before the dismissal of the complaint.

Mr. Favretto: Well, Rule 11, I think, is the... is the appropriate vehicle for dealing with this kind of issue in the most efficient manner rather than to have perhaps a separate proceeding that would call these questions up in a... in a completely different context.

I think Rule 11 was clearly intended to allow the district courts to deal with the problem.

Unknown Speaker: --I don't disagree with that.

I just question your use of immunity bath.

Mr. Favretto: It's not a... it's... I... I--

Unknown Speaker: It's nothing like an immunity bath.

Mr. Favretto: --I accept your... your modification.

But this case is a good example of why that can't be the rule.

The violation occurred with the filing, the harm attached, the publicity attached.

And we invoked a rule.

We filed our motions.

The affidavits were filed.

Everything was done.

Indeed, the hearing on the motion occurred even before the voluntarily dismissal was perfected because this voluntary dismissal required a waiver of the notice to the punitive class members.

So, the only unfairness in that scenario would be to the system and to... and to the victim of the... of the misconduct in this case.

On the standard of review, we believe that the Petitioners got what they asked for below.

They got a fresh look.

There is nothing in the court of appeals' opinion that suggests deference to the district court on the question of liability, Rule 11 liability.

Indeed, the court of appeals simply looked at their own affidavits and said those affidavits do nothing more than confirm the fact of a Rule 11 violation.

It was impossible to conclude, in the words of the court of appeals, how no inquiry could be sufficient inquiry or reasonable inquiry, and how an inquiry with respect to four proximate markets could support an allegation with respect to misconduct nationwide in all major metropolitan areas.

Unknown Speaker: Did the appellate court apply an abuse of discretion standard, do you think?

Mr. Favretto: Explicitly as to the selection of the sanction and the amount of the sanction, I'm not certain of that, Justice O'Connor.

I think that... that... there's... I wouldn't quarrel with... with a... with a reading that said that the court of appeals was operating under the circuit standard and that was the prevailing standard that they were--

Unknown Speaker: And what standard do you tell us should be applied?

Mr. Favretto: --We... we are beyond... going beyond the application in this case because we don't think it would make a difference in this case.

But we believe that the abuse of discretion standard is the appropriate... appropriate standard in Rule 11 cases.

Unknown Speaker: Well, what if--

--Go ahead.

I'm sorry.

What if the question is whether the filing of the complaint was warranted by a good faith argument for the extension, modification or reversal of existing law?

Mr. Favretto: I think--

Unknown Speaker: Now, does that pose some kind of mixed law of fact question?

Mr. Favretto: --It may well be a mixed question of fact and law.

I think it's the kind of... the kind of question that appellate courts customarily deferred to the district court's judgment in deciding--

Unknown Speaker: And you think even there an abuse of discretion standard--

Mr. Favretto: --I do because I... I think the preamble to that... to that provision in the rule suggests that after a reasonable inquiry... after a reasonable inquiry that it is based upon the good faith.

So I think it really comes back to what was done.

We're not talking about being wrong.

Rule 11 is not about being wrong.

Rule 11 is about what did you do before you filed.

Unknown Speaker: --Well, that sounds like there would be just some historical facts at issue.

Who did what and what did they do.

And if... if there's a dispute about that, why shouldn't it be reviewed by a clearly erroneous standard?

Mr. Favretto: If there is... if there is... if there are historical facts at issue, a clearly erroneous standard may be appropriate as to those disputed facts.

Frankly, I believe that a clearly standard is--

Unknown Speaker: Well, what about the--

Mr. Favretto: --an abuse of discretion standard in a factual context.

Unknown Speaker: --All right.

What if... what if you have the facts before you and the question is was there a violation?

Mr. Favretto: That's the application of the facts to the standard or the standard to the facts.

Unknown Speaker: Yes.

And the... the district court has made a decision that yes, there was a violation.

Now, what should the court of appeals ask?

Mr. Favretto: I think under an abuse of discretion standard if there was a clear--

Unknown Speaker: That shouldn't be de novo?

Mr. Favretto: --No.

No, no, Justice White, it should not.

If there is a clear error in... in... in assessing any relevant fact or consideration, or there's some clear error of judgment, I think that's reachable under an abuse of discretion standard.

Unknown Speaker: Are you saying there's no difference in the clearly erroneous standard and the abuse of discretion standard?

Unknown Speaker: Because if there isn't, then we can say clearly erroneous and you don't care.

Mr. Favretto: --Well, I... I... I think the two are very close.

The two are very close.

I think the traditional standard that has been... that has been applied in similar situations talks in terms of abuse of discretion or deferential.

Unknown Speaker: Well, I... I liked the way you put it earlier.

You said that clearly erroneous is abuse of discretion as applied to factual determinations.

Mr. Favretto: That's right.

Unknown Speaker: But most of these abuse of discretion things have some factual judgments, they have some discretion as to remedy, which are not factual.

But insofar as it's factual, you... you wouldn't say that discretion has been abused unless there's a clear error, would you?

Mr. Favretto: That's where I come out, Justice Scalia.

Unknown Speaker: But may I ask this?

Do you conceive it to be part of the trial judge's duty to make findings of fact on the relevant factual issues?

Mr. Favretto: I think the trial judge should make clear his basis for his judgment.

Unknown Speaker: Well, that's not an answer to my question.

Mr. Favretto: Well... but if that amounts to findings, then there should be findings.

I think... I... I think--

Unknown Speaker: See, what I'm concerned about is that... as I read your brief, that your abuse of discretion standard might not require any factual findings.

It's just sort of a general statement of a conclusion about the overall problem.

Whereas if you would agree that the judge at least had a duty to make some specific factual findings that were the predicate for the action, then I don't see how you could escape the fact that the standard of review of those facts would be clearly erroneous.

Mr. Favretto: --I... I think if there... again, if there are--

Unknown Speaker: It seems to me the argument for an abuse of discretion standard is an argument for not being required to make specific factual findings.

Mr. Favretto: --I... I would... I would... I would think that a... that a district court should be... should be required to state the reasons, the factual basis, whether they are disputed or undisputed.

And if they are disputed, perhaps a clearly erroneous standard could be applied on review to his judgment about where the facts come out.

But I think if a court of appeals saw a record or a decision that didn't allow it to understand what the basis for the district court's judgment was, then that would be of itself an abuse of discretion and it would send the case back for a clearer statement of the factual underpinnings of the... of the holding.

Unknown Speaker: Well, if one were to compare different standards of review and if you were to say clearly erroneous on facts and de novo on law, as opposed to just abusive discussion generally, certainly the abusive discussion standard would spawn less litigation over this subject than this trifurcated type of thing, wouldn't it?

Mr. Favretto: No question about that.

No question about that.

And I think giving appellants two full bites at the apple in the... in the court of appeals just would foster additional litigation over sanctions.

And it... it's... oh, and abusive... not reviewing under an abusive discretion standard is also completely inconsistent with the purposes of the 1983 amendments.

As I... as I have read the background of the... of the amendments, and the Advisory Committee notes, the whole purpose here was to kind of invest district courts with stronger sanctioning authority and with the weapons necessary, if you will, to administer the practice of attorneys before those courts.

And to... to give them the flexibility necessary to deal with a variety of factual situations, but yet applying an... a... an objective standard of reasonableness under the circumstances.

Not the judges own feelings about the frivolity of something, but an objective standard that would allow the reviewing courts to measure the exercise of the district court's discretion.

The--

Unknown Speaker: Are you going to talk about the award of fees for the appellate litigation?

Mr. Favretto: --Oh, yeah.

I'm about... I'm about to move on to that, Justice Scalia.

The Petitioner's position on appellate fees is simply that the district court cannot... cannot... include in its sanction the costs of successfully defending a Rule 11 award on appeal.

Their view, more elaborated, is that this represents a kind of punishment for taking a non-frivolous appeal, and only Rule 38 of the appellate rules governs conduct on appeal.

Our position is that that argument misses the point.

This is not a matter of punishing anyone for conduct on the appeal.

This is simply an exercise of delineating the proper scope of the sanctions attaching to misconduct in a district court.

The violation occurs in the district court, but the injury lingers on.

Injury caused by the district court misconduct is simply not limited to what happens to an adversary in the district court.

Therefore, the sanction should not... should similarly not be limited.

Unknown Speaker: Well, did the court below hold that appellate expenses must be awarded in a reasonable amount if the sanction is affirmed?

Mr. Favretto: The court of appeals sent the case back to the district court for... for an award of reasonable appellate expenses, that's correct.

Unknown Speaker: As an automatic sort of thing?

Mr. Favretto: As a necessary component of the... of the sanction which was invoked in this case, which was a fee should be sanctioned.

Unknown Speaker: Well, that certainly is kind of a disincentive to non-frivolous appeals, isn't it?

Mr. Favretto: Well--

Unknown Speaker: I mean, certainly we saw fit to take the case here.

It poses issues that need to be resolved.

And I'm not sure that I understand why there should be some automatic rule in any event.

Mr. Favretto: --Well, the... the... the inclusion of appellate fees in the sanction award in our view turns upon the invocation by the district court of the fee-shifting aspect of the rule.

The district court says: I want to deter this conduct.

Among my... among my options is a fee-shifting option.

I think that's the most appropriate sanction in this case.

I will invoke that... invoke that authority.

Once that authority gets invoked, then we believe Rule 11 should be treated as... as other fee-shifting provisions are customarily treated.

Simply provide... fulfill the objective of the fee-shifting... o the fee-shifting award, make the adversary whole for the costs imposed by the misconduct.

But here they can take the--

Unknown Speaker: Excuse me.

Why can't you leave that up to the district judge?

In these other situations you have a statute and... and you have to treat it uniformly.

Here you have a district judge who has made the fee-shifting determination.

Why may he not in some cases say, I'll give you only the costs here in the district court, and in other cases say, I'll give you the costs all the way?

Mr. Favretto: --He... he may say that.

Indeed, he may impose a sanction that doesn't amount to your reasonable costs.

Unknown Speaker: That's right.

Just as... just as he can do that, why can't he--

Mr. Favretto: Under the rule--

Unknown Speaker: --say just... just costs in the district court, not on appeal?

Mr. Favretto: --But we believe that... we believe that Judge Gasch here in the district court explicitly invoked the fee-shifting... the fee-shifting provisions of the rule.

And that carries with it, under the plain meaning of the rule, the... the full impact of the misconduct and the full impact of that misconduct continues beyond the district court.

And that's why we believe that the... that the appellate fees should be included... a reasonable amount of appellate fees.

Now, the court has wide discretion on remand as to determine what is reasonable in... in... under the circumstances of this case.

Unknown Speaker: Suppose he said no... no appellate fees?

Mr. Favretto: We don't feel... we don't feel he has that discretion at this point, Justice Scalia.

And, certainly, if this Court were to rule that the desirable... the desirable rule in such cases was to include... to make adversaries whole once the fee-shifting aspect of the rule was invoked, that... that would be rule that would govern future cases.

And district courts would know, when they invoking fee-shifting, that it was going completely beyond.

Unknown Speaker: But what... what particular language is it of Rule 11 that you think authorizes the automatic imposition of attorney's fees on appeal?

Mr. Favretto: The language that entitles... entitles the adversary, or the victim, to reasonable expenses... and it's including attorney's fees... incurred because of the filing, the improper filing.

Incurred because of, caused by, as a result of... that's the language.

Unknown Speaker: And so... and you say the appeal is caused by that?

Mr. Favretto: Absolutely.

Unknown Speaker: One... one could equally well argue the appeal was caused by the imposition of sanctions, I suppose.

Mr. Favretto: Well, but... but... but the imposition of sanctions is a mandatory... is mandatory in Rule 11.

The imposition... that's... that's just... the imposition of sanctions was the logical consequence, the intended consequence of the motion for sanctions, and it flows from the Court's authority to discipline the lawyers.

Unknown Speaker: Do you think our client's attorneys fees in... in opposing the Rule 41 argument should be paid by the other side?

Mr. Favretto: Absolutely, Justice White.

Unknown Speaker: Well, why?

Do you think that is a--

Mr. Favretto: Let me--

Unknown Speaker: --Was that a frivolous issue?

Mr. Favretto: --No.

Let me just... the way we look at it... I'll back up a little bit... why we don't believe this is going to deter meritorious appeals.

First of all, you're dealing with a class of... of litigants, lawyers, who aren't going to be easily deterred.

They are probably the best-informed group as to making assessments about what the... what their chances are on appeal.

Take this case for example.

When it went to the court of appeals, it had two issues.

One of which, the Rule 41 issue, was never raised in the district court.

It was never... never, ever raised in the district court.

And the circuit stood five to one, six to one, whatever it was, against them on that issue.

The second issue was--

Unknown Speaker: Suppose that this is... suppose the only issue that went to the court of appeals was the 41?

Mr. Favretto: --And as well as the--

Unknown Speaker: No.

Mr. Favretto: --the district court abused its discretion in--

Unknown Speaker: No, no.

Just rule... all these... they said--

Mr. Favretto: --Okay.

Unknown Speaker: --They said sanctions shouldn't have been imposed at all because of Rule 41.

That's the only issue it took up.

What about then?

Mr. Favretto: We don't... we think it would have been equally beneficial for society as a whole if the Petitioner here had assessed his chances and felt that his chances were... were a long-shot and had decided not to appeal.

I don't know why this Court would want to encourage appeals from Rule 11 sanctions.

Now, the... where the issues that were accepted by this Court on review were all issues that resulted as a consequence of the court of appeals decision--

Unknown Speaker: Has... hade any other courts ever held that the Rule 41 bars sanctions after a dismissal?

Mr. Favretto: --When... one court, the Second Circuit.

One out of, I think, ten--

Unknown Speaker: One... one--

Mr. Favretto: --or eleven.

Unknown Speaker: --misinformed, badly misinformed federal court?

[Laughter]

Mr. Favretto: We... we don't find the reasoning persuasive.

Unknown Speaker: Well, I know.

But... but wouldn't you... to get... to get attorney's fees, if the only issue were Rule 41, it seems to me you'd have to say it was really a groundless, frivolous claim.

Mr. Favretto: Not at all.

Not at all.

It has nothing to do with the frivolity of the... of the claim or the merits of the claim.

Unknown Speaker: --Yeah, but supposing there's three issues on appeal and you win on two and lose on one, you still get all your fees?

I think you do under your argument.

Mr. Favretto: If the sanction is sustained--

Unknown Speaker: Sure.

Mr. Favretto: --If the sanction is sustained, would--

Unknown Speaker: But they say you... you charged too much for your time or you put in your time from the time they showed you the complaint to the time they filed, or something like that, which shouldn't have been done.

So we cut that out.

But then you'd compensate for it by getting a little more for having been required to defend an appeal.

You'd end up a net winner.

Mr. Favretto: --Justice Stevens, we... we just want to come out the same place we came out when we went in.

We don't want to win anything.

We're not trying to make money on the deal.

My client doesn't... didn't want to get involved in this litigation.

It's been swept along.

It's like a snowball rolling down a hill.

Before it hits its victim with its full impact, it's three times larger than it was when it started.

Unknown Speaker: May I ask in that regard, are you... you entitled to compensation for your attorney's fees for time spent between the time they showed you the complaint and the time they filed it?

Mr. Favretto: We... we didn't--

Unknown Speaker: I suppose you went right to work on the case as soon as--

Mr. Favretto: --We didn't... no, we didn't see... I... I... I'm not familiar whether or not... what... what those fees amounted to or whether or not... well, what they amounted to.

I'm not... I don't recall.

But we didn't seek those, in any event.

We didn't seek those.

Unknown Speaker: --So, what you... any work you did on the complaint before it was filed was... was gratis as far as the plaintiff is concerned?

Mr. Favretto: Oh, absolutely.

Absolutely.

Absolutely.

Unknown Speaker: Why... why did the district judge cut your fees as badly as he did?

Mr. Favretto: He... he just felt that we shouldn't have prepared as much as we did for the ultimate class action proceedings.

We thought... we thought this was a major matter.

If it didn't get dismissed, the motion--

Unknown Speaker: It's a major frivolous matter.

[Laughter]

Mr. Favretto: --The motion... well, we thought we were going to prevail.

No, we thought we were going to prevail ultimately.

No question about it.

You know, the interesting thing about that about that is they say, why didn't they tell us?

Footnote 14 of their Petitioner's... of the Petitioner's brief is a remarkable defense of the validity of their complaint to this day.

They went out and they found out, after we filed the motion, that, well, they don't have one retailer in every area, they've got a couple.

And this guy only carries this size and this guy carries that size.

And they say they've still got the same case.

They defend it to this very day.

Unknown Speaker: Well, how does that [inaudible] this Court to allow sanctions?

If you're going to... do we have to--

Mr. Favretto: The... the reasonable amount of the appellate fees incurred because of this original filing should be awarded to us once the--

Unknown Speaker: --You really treat it as a fee-shifting statute,--

Mr. Favretto: --Absolutely.

Unknown Speaker: --don't you?

Mr. Favretto: Absolutely.

Unknown Speaker: But it doesn't... it doesn't say that.

It--

Mr. Favretto: It's a sanction.

Unknown Speaker: --You know, 1988 says the prevailing party--

Mr. Favretto: Right.

Unknown Speaker: --gets attorney fees.

But Rule 11 doesn't say the prevailing party gets attorney's fees.

Mr. Favretto: It doesn't have to do with prevailing or not prevailing.

Mr. Favretto: --My client wants to be no worse off as a consequence of this misconduct--

Unknown Speaker: I don't blame him.

Mr. Favretto: --than... than he was when the frivolous filing was made.

To... to not allow for a reasonable award of attorney's fees... and the judge, the district judge can... can get into the issues of where and when and how it's divided and cut, and all of that.

But to now allow a reasonable award of attorney's fees on appeal would simply undercut... undercut... the deterrent effect of the sanction.

Unknown Speaker: You made the argument in... in your brief that in the vast majority of cases the fees on appealing these things would be greater than the fees to be recovered from the--

Mr. Favretto: That's true.

Unknown Speaker: --especially in a Rule 41 situation, I would assume.

Mr. Favretto: That's true.

That's true, Justice Scalia.

We... we--

Unknown Speaker: In this particular case is that... do you have any idea whether that's so?

Whether--

Mr. Favretto: --It's true in this case as well.

It would be true in this case--

Unknown Speaker: --But if... if you don't get your appellate... fees for the appellate litigation, you... your client ends up... ends up in the whole, or you do?

Mr. Favretto: --Right.

Unknown Speaker: Somebody does.

Mr. Favretto: That's correct.

Now, we... we... we tried to contain our damage at every stage of this litigation.

Thank you.

Unknown Speaker: Thank you, Mr. Favretto.

Mr. Saltzburg, you have a minute remaining.

Rebuttal of Stephen Allan Saltzburg

Mr. Saltzburg: Mr. Chief Justice:

We believe Rule 38 of the appellate rules and Section 1912 of 28 U.S.C. govern the recovery of fees, including attorney's fees on appeal, and they are the exclusive rules.

Nothing the advisory committee notes on Rule 11 indicates that it was intended to be a fee-shifting statute or rule for appeal.

With respect to the tripartite analysis that we urge upon you in terms of scope of review, you're right, Mr. Chief Justice, it's likely to produce more appeals.

It's likely to produce more careful appellate review, it's like to have lawyers coming up to the courts of appeals more often.

It's what this case is about.

It really is about where the lawyer is hamstrung with questions of attorney/client privilege back at a time where they didn't know how to deal with that question and put forth all the facts before the district court... whether they're entitled to careful findings, the most careful kinds of scrutiny before the district judge rules, and whether before their reputations are impugned they're entitled to careful appellate review.